ZD Hopes to Bask in Tech Stock Glory

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ZD Hopes to Bask in Tech Stock Glory

When Ziff-Davis hits the New York Stock Exchange within the next few days, it'll share a hope with other media companies that focus on technology: that it can benefit from its association with the Internet and get caught up by the tide that has lifted companies like Yahoo and DoubleClick recently.

But will the Internet luster be enough to burnish Ziff-Davis? The Manhattan-based publisher and trade show organizer has been losing ad dollars in its top three titles, PC Magazine, PC Week, and Computer Shopper. Growth of its Comdex trade show has been flat. And Ziff's towering debt, mostly owed to its parent, Japan's Softbank Corporation, adds up to more than US$1.5 billion.

In filings with the Securities and Exchange Commission, though, Ziff boasts of its heavily-trafficked Web site, ZDNet, a soon-to-launch cable channel called ZDTV, and the fact that Comdex/Fall is the biggest trade show in the US.

"Ziff is one of those interesting companies that could benefit from its association with technology and the Internet," says Adam Schoenfeld, a vice president at Jupiter Communications, the new media research firm. "Really, it's a traditional publishing company. But the whiff of the Internet is a boost to multiples."

Ziff's prospectus doesn't indicate exactly what portion of the company's revenue comes from its online division. Instead, online is grouped in with "market research" and "joint ventures and licenses," which all together made up just 11.5 percent of Ziff's income in 1997. The prospectus did note that Ziff employs 100 people to produce its Web site, which Forrester Research analyst Jim Nail described as "a tremendous amount of overhead."

The result is a Web outpost that in March was ranked as the 13th most popular destination by Relevant Knowledge. But Nail at Forrester says that investors shouldn't expect that ranking to hold up over time.

"While ZDNet looks like a major player on the Web today, as more consumers and mass audience come to the Web, [Ziff] will look much the same as they do in the offline world – like a big player in a specific space," Nail said.

On the Web, Ziff faces off against other providers of technology news like CNET and CMP Media's online division. In print and on trade show floors, it will compete heavily with Mecklermedia and CMP Media, which are publicly-traded, and International Data Group, which is privately-held.

"Media companies that are private don't tell the truth [about their circulation and revenues]," Meckler said. "Going public changes that. And it forces companies to kill things earlier, as we saw happen with CMP and NetGuide."

Meckler also said that being associated with the Internet helps a media company's valuation, and complained that Wall Street hasn't given his company enough credit for its Web efforts, which center on Internet.com.

Ziff's IPO, which aims to raise $439 million by offering 25.8 million shares, is primarily focused on paying off the company's debts to Softbank. The Japanese software conglomerate bought Ziff in 1996 from the buyout firm Forstmann Little & Co. for $2.1 billion. One year earlier, Softbank had paid over $800 million for Comdex, which was later combined with Ziff's publishing and trade show operations. But when Ziff goes public, its value will be only about $1.8 billion.

Alex Schay, an analyst and writer at the Motley Fool, terms the financials "ugly," but says that even a moderately-successful IPO would benefit Softbank. "[Softbank] wants to unlock the value of this business," says Schay. "They're dealing with a glacial recession in Japan, and struggling to find any way to boost the value of their holdings on paper."

"What their parent company did to them is egregious," says Meckler about the debts Ziff accrued. "Where did they get a billion and a half dollars of debt? Even though Ziff is a great company with some great media properties, this really puts them behind the eight ball before they even start."

From the outset, the pressure will be on Ziff to prove it can pick up the growth in its trade show and magazine divisions. And later this year, all eyes will be on the launch of ZDTV, which Ziff will operate in partnership with Mac, Inc., another Softbank subsidiary.

If it can make the television, trade show, and publishing divisions pay off, Ziff will have created a high-tech media company unlike any of its competitors.

And if it can tag along with the pack of successful Internet stocks, Ziff's IPO may prove a winner for Softbank and investors.

"It's smart business, but the question is how receptive the markets will be," says Schay at the Motley Fool. "Investors are becoming more savvy about what's an Internet stock and what's not."